What is an American Depositary Receipt (ADR)?

An ADR is a negotiable U.S. security that represents the underlying securities (generally equity shares) of a non-U.S. company. ADRs were specifically designed to facilitate the purchase, holding and sale of non-U.S. securities by U.S. investors. ADRs are issued by a U.S. depositary bank when the underlying shares are deposited in a local custodian bank, usually by a broker who has purchased the shares in the open market. The ADR certificate states the responsibilities of the depositary bank with respect to actions such as payment of dividends, voting at shareholder meetings, and handling of rights offerings. ADRs are treated in the same manner as other U.S. securities for clearance, transfer and ownership purposes. An intra-market transaction is settled in the same manner as any other U.S. security purchase: in U.S. dollars on the third business day after the trade date and typically through the Depository Trust Company (DTC).